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Here's Why You Should Hold Varian Medical (VAR) Stock Now

Zacks Equity Research

Varian Medical Systems, Inc. VAR is currently gaining from a slew of collaborations and buyouts, and a raised guidance. However, tariff woes from the U.S.-China trade dispute plague the company.

Shares Up

Over the past year, shares of this Zacks Rank #3 (Hold) company have increased 19.4% compared with the industry’s 6.2% rally. Shares have also outperformed the S&P 500 index’s 6.7% rally.

What’s Favoring the Stock?

Strong View

In recent times, Varian Medical raised its guidance for 2019 revenues to $3.09-$3.18 billion from the previously guided $3.06-$3.15 billion.

Moreover, the company continues to expect adjusted earnings per share of $4.60-$4.75, compared with the previously stated band of $4.55-$4.70.

Collaborations & Buyouts

Varian Medical has been making noteworthy progress through collaborations in recent times.

For instance, the company recently announced a tie-up with Tennessee Oncology for the implementation of Noona. Notably, Noona is a software application for managing patient symptoms and capturing patient reported outcomes. This is expected to drive Varian’s core Oncology business, which is a significant contributor to the company’s top line.

Moreover, in a bid to boost cancer care, Varian announced the acquisition of Texas-based Endocare and Hangzhou, and China-based Alicon, last month. Thus, the company is focusing on inorganic expansion through buyouts. (Read More: Varian Medical Buys Endocare & Alicon to Boost Cancer Care)

Also, in recent times, Varian acquired Cancer Treatment Services International for $283 million. Notably, the company expects the buyout to prove accretive to earnings per share during fiscal 2021 on an adjusted basis and fiscal 2022 on a reported basis.

Deterrents

The U.S.-China trade dispute has impacted overseas sales of several MedTech manufacturers. This affected Varian Medical’s last-quarter revenues by $9 million. In fact, the core Proton business was impacted by $7 million in recent times.

Additionally, management at Varian expects cash flow from operations to fall to $460-$510 million as against the earlier stated range of $440-$490 million, owing to the slew of acquisitions by the company.

Varian Medical Systems, Inc. Price and Consensus

 

Varian Medical Systems, Inc. Price and Consensus

Varian Medical Systems, Inc. price-consensus-chart | Varian Medical Systems, Inc. Quote

Which Way Are Estimates Headed?

For the fiscal third quarter, the Zacks Consensus Estimate for earnings is pegged at $1.14, indicating an increase of 9.6% from the year-ago quarter’s reported figure. The same for revenues is pinned at $760.2 million, suggesting an increase of 7.2% from the figure reported in the year-ago quarter.

For fiscal 2019, the Zacks Consensus Estimate for revenues is $3.14 billion, calling for a rise of 7.6% from the year ago. The same for earnings stands at $4.64, implying growth of 5% from the figure reported in the previous year.

Key Picks

A few better-ranked stocks in the broader medical space are DENTSPLY SIRONA XRAY, Penumbra PEN and CONMED Corporation CNMD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DENTSPLY’s long-term earnings growth rate is expected to be 11.5%.

Penumbra’s long-term earnings growth rate is projected at 21.5%.

CONMED’s long-term earnings growth rate is estimated at 13.3%.

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